27/04/2018 - Euro Weakens as Draghi Plans to Continue QE

EUR

The euro fell yesterday after the ECB left policy on hold and reiterated its pledge to maintain its asset purchase program until at least the end of Q3 or until inflation has risen sustainably close to the banks 2% target. ECB chief Mario Draghi's comments left markets concerned about the eventual end date of its bond buying scheme. During the press conference following the decision, Draghi said the bank plans to continue purchasing €30 billion ($36.5 billion) of bonds each month until “the end of September 2018, or beyond, if necessary".

Draghi also brushed aside recent signs of weakness in the Eurozone economy. He argued that despite evidence of a “pull-back” from exceptional growth readings seen around the turn of the year, growth remained “solid and broad-based” and said the bank remains confident that inflation will hit its target over the medium term.

However the ECB chief also sidestepped questions regarding the banks plans for its June meeting. At the same time he also warned of protectionism adding that risks related to global factors, including the threat of increased protectionism, have become more prominent”. Although many economists warned that a trade dispute between China and the US would damage growth in the Eurozone the bank left its 2018 growth forecasts at 2.3%. However there are still growing concerns that a risk of a global trade war may prompt the bank to reconsider its plans wind down asset purchases at its next meeting

USD

The dollar strengthened yesterday despite the yield on 10-year treasury bonds falling below 3% as a result of broader weakness in the euro following the ECB press conference and mixed economic data. Optimism around higher inflation and economic growth in the US economy has boosted yields to their highest level since 2014.The greenback also received some support from mostly positive economic data as jobless claims and the advance goods trade balance topped expectations while durable goods figures were below expectations.